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Wednesday, March 25, 2009

Debt Auctions: Failures Rising

The first UK debt auction has failed under the avalanche of supply. Expect more frequent and more severe auction failures. Back in January a German Bund auction failed. Then in February it failed a second time.

January’s TIC data was an unmitigated disaster. Ben Bernanke has seen the writing on the wall, and panicked last week into monetizing debt in a desperate bid to stall the inevitable. He knows that when a US Treasury auction finally does fail, the maw of the Abyss will open up and swallow up the entire global financial system.

U.K. Gilts Slump After First ‘Failed’ Bond Auction Since 1995: “U.K. gilts slumped after demand at an auction of bonds fell short of the amount offered, the first time the Treasury failed to attract enough bids at a sale of regular debt in 14 years.

Investors bid for 1.63 billion pounds ($2.4 billion) of the 40-year securities, less than the 1.75 billion pounds of 4.25 percent notes slated for sale, the U.K. Debt Management Office said today in a statement from London.

“Basically it’s the first failed auction,” said John Wraith, head of sterling interest-rate strategy at RBC Capital Markets in London. “They didn’t receive enough to cover it all so the market has obviously sold off extremely heavily.”

The yield on the 10-year gilt jumped 10 basis points to 3.43 percent by 11:45 a.m. in London. The 4.5 percent security due March 2019 slipped 0.84, or 8.4 pounds per 1,000-pound face amount, to 109.02. The yield on the two-year note rose six basis points to 1.30 percent. Yields move inversely to bond prices.

Prime Minister Gordon Brown’s government plans to sell an unprecedented 146.4 billion pounds of debt this fiscal year as Europe’s second-largest economy grapples with its first recession since 1991. Demand hasn’t fallen short at a sale of regular U.K. government bonds since 1995.

The U.K. had two failed auctions in the past 10 years, the most recent in September 2002 when the Treasury received bids for 95 percent of the 900 million pounds of 30-year inflation- protected bonds offered, according to the DMO’s Web site. The other failure was in 1999, when it tried to sell 500 million pounds of inflation-protected bonds.”

The People Are Slowly Catching On…